Quick Answer
Closing a wrap transaction requires understanding existing ownership, liens, underlying financing, new terms, documents, servicing plan, and title and legal requirements. It begins with telling the closing team the full structure and ends with a servicing arrangement in place.
A wraparound mortgage transaction does not close like a conventional purchase. The process involves several steps that are unique to the wrap structure. Here is how it typically works.
Step 1: Tell the Closing Team
Before anything else, tell the title company the full structure of the proposed wrap. The title company needs to know about the underlying financing, the proposed new financing, and how the transaction will be documented. This is not the time to be vague. If the title company does not understand wraps, find one that does.
Step 2: Open Title and Order Examination
Open title with a company experienced in creative finance. The examination will identify all existing liens, including the underlying mortgage, judgment liens, tax liens, and any other encumbrances.
Step 3: Identify Underlying Financing
The existing mortgage must be fully identified: lender, loan number, balance, interest rate, payment terms, and any restrictions on transfer or further encumbrance.
Step 4: Establish New Financing Terms
The wrap note and deed of trust are prepared with the agreed terms: principal, interest rate, amortization, balloon payment if any, maturity date, late charges, and default provisions.
Step 5: Address Compliance and Legal Review
Applicable federal and state laws may apply. Legal counsel should review the structure and documentation.
Step 6: Prepare Documents
The deed (warranty or other type), wrap promissory note, wrap deed of trust, servicing agreement, and any required disclosures are prepared.
Step 7: Sign, Fund, Record
The parties sign. Funds are disbursed according to the settlement statement. The deed and wrap deed of trust are recorded in the proper order.
Step 8: Begin Servicing
After closing, the buyer starts making payments under the wrap. A professional servicer can manage collections, disbursements, and accounting.
For more detail on who handles payments, see Who Makes Payments in a Wrap Transaction?